TMFAleph1 (92.57)

Do You Think Gold is Money?

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This is a wonderful exchange between Ron Paul and Bernanke from Wednesday's hearing [the full exchange can be viewed in the video below.] I don't know if this is an accurate interpretation, but I think Bernanke displays a look of incredulity when Paul asks him if gold is money. In fact, he appears stunned by the question and has to pause for a moment before giving his answer.

Personally, I think Bernanke comes out looking better in this exchange, but I'm sure many people here will think the opposite. Obviously, it depends on your notion of gold.

Paul: Do you think gold is money?

Bernanke: [Pause] No.

Paul: Even if it has been money for 6,000 years? Somebody reversed that, eliminated that economic law.

I mean, I liked Uncle Ben's logic with the comparison to treasury bills, but when he said "tradition" I literally lost it and started laughing aloud. If "tradition" is the best he can do, I am incredibly unimpressed...

I do find it odd that on one hand he poo poos gold and then we hear stories of central banks including the Federal Reserve along with countries buying gold. My guess is they all buy it, because they are afraid of each others currencies. What do I know?

That's just the thing though. By coming up with no better answer than "tradition" he directly implies that the holding of gold is both odd and arbitrary. Obviously, many of us disagree.

Imagine if you were at work one day and your boss came up and asked you why you did a certain thing a certain way. You answered by shrugging your shoulders and saying, "I dunno, tradition?" Do you think that your boss' opinion of you would be increased or decreased by that exchange?

If Bernanke honestly doesn't know why he's holding gold, then perhaps he shouldn't be holding it at all. I'd gladly take some of it off his hands. I know what I want it for.

Actually, I really like Bernanke's responses. The pause after the first question "is gold money?" is good - Paul looks a bit like a crazy.

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Bernanke takes a lot of flak, but I am so glad we have him in there rather than someone like Greenspan. Can you imagine what it'd be like now with Alan Greenspan as the FED bank chief??

At least with Bernanke, you've got a guy who's studied the Great Depression thoroughly to have written a book. And so far the plans of the FED have prevented that recurrence.

I agree with Bernanke that gold is high based upon fear, fear of the "black swan", or as Bernanke says "tail risk" which is the very damaging but very unlikely occurrence. That's what's driving a lot of the markets, bond prices, gold prices since 2008.

Bernanke with his printing press is, has been, and will be the destroyer of money as we know it. Whether people want to admit it or not, gold is, has been, and will be the winner in the exchange between all fiat currencies as they are systematically destroyed.

Monitary Value is just another way of saying the amount of money something would bring if sold.

Gold, as the world works today, is not money. It is a illiquid asset. It is a store of wealth that first needs to be sold in order to use the proceeds to make a purchase. There are exceptions to this but they are few and most do not see the light of day.

Money is nothing more than a concept. All money, whether gold or stones or paper, stands in for the value we place on our own time, labor and self-worth. Gold has value only insofar as people believe they can measure their time, labor and self-worth by it...and that that measure will remain constant in the future. Paper can do the same thing...the difference is that fewer people believe in a universal paper, and that paper will remain a constant measure in the future.

Food has value. Shelter has value. Companionship has value. Weapons and tools have value. Anything else is just a placeholder for the value of these things.

I agree with turfscape, well said. People get hung up on this big concept of "money" and argue over what is the correct definition, if gold fits into that definition, and the metaphysical and spiritual implications (joke). Money and gold are very strange concepts because they are based on faith. They work because they work, a very circular concept.

But we lost sight of the basics. Instead of asking "what is money?" the practical question is "what is the purpose of money?" It was invented for a reason and everything else is secondary. Its purpose is easy to understand - in order to more easily buy and sell goods. Can you buy anything with gold? No. Everyone must exchange their gold for USD first to buy stuff. So if gold does not serve the primary purpose of money, you can't call it money. You can say, "it used to be money," or "it will be money again one day," but you cannot call it money today.

Today, most of what people think of as money is not even things you can hold. It is numbers in bank accounts, saved in computer memories. A large number of people still feel more comfortable using coins and paper, and do not totally trust using electronic money on a computer memory.

Of course holding gold is "tradition." Ron Paul makes that argument, "It has been money for 6,000 years." That sounds like an appeal to tradition. What else does he have, does any gold supporter have, but an appeal to tradition? To say, "people have always found it valuable"?

Now, what's wrong with tradition? Nothing. In fact traditions are what hold societies and economies together. We need our traditions, badly. Traditions are often very wise. They survived the test of time. The longer something has lasted -- the more generations and the more wise men, in more situattions, have found it valuable -- the more important it is.

We need our traditions. It is what makes us work. (Law, the Constitution, family, etc.) It is a very perceptive comment by Benanke.

Central banks are built on tradition. That is one of their stocks and trades. Though they tend to refer to it as "confidence". When they do something odd, new, untraditional, people get nervous. QE anyone? And people should since stability, confidence, i.e. tradition is important. Central banks sold their gold and bought diamonds, even at a huge price discount, people would freak out. It would be such a violation of standard procedures (i.e. tradtiion) that it would rock the markets. The price of gold would skyrocket.

I suppose what I am really saying is....gold bugs are traditionalists. And for good reason. People have found value in gold for a very long time. That tradition is much longer than the current Dollar tradition.

If you gave me a choice between a US dollar and a dollar's worth of gold, I'd take the dollars worth of gold every time. Gold is not a promise to make good. Gold is a setttlement. We aren't printing more gold every day and Moody's isn't thinking about reducing our credit rating because they don't like our gold. We can't invent more gold to solve our inability to have a responsible budget.

Creditors don't hate our dollars from a hundred years ago. They hate our magical to new dollars with no calories and no guilt.

On what planet is 12.1% of global central bank reserves "so little"? What does that equal in tonnes?

Could the fact that it is "only" 12.1% have anything to do with the accelerating amount of paper money cascading across the planet? You've heard of foreign exchange reserves, right?

I think we know the answer to these questions.

That question and smug look Paul made just made him look like an donkey that though he pulled a fast one on somebody.

ROFL, the hatred toward a man who only wants to help us achieve freedom is fascinating and exciting. I like when it is compounded by the de-pants-ing of an authority figure who reveals he has no clue (and really, how many times has Bernanke shown that now?)

My earlier comment was based on your transcript... but after just watching it, I am really put off by the condescending, rude attitude of Rep. Paul. I don't agree with him, but I respect him. He some of my respect with that performance.

At the risk of sounding like a suck-up.... I appreciate and thoroughly enjoy your comments David.

There are rational criticisms of gold/ gold as money but I have failed to hear any at this website.

It's all ad hominen after ad hominen. I exclude Alex Dumortior who actually makes valid points (although his analysis is usually oversimplified and likely incorrect... think gold can only go to 5,000 or 800 based on two possibilities.)

"Two important questions, Cluck: 1. Is gold money?2. Why do central banks hold gold?"1. No. Ben did an good job in stating this as well. 2. Because many people think it has value. There are so few uses for gold that its value is all preserved.

This one. You see there is another 87.9% held in other forms and the only reason it is currently at 12.1% is because the going rate of gold has be climbing fast then many of the banks have been selling it.

I know you love Paul and that you believe all he says is correct and unquestionable but he did say: Even if it has been money for 6,000 years? Somebody reversed that, eliminated that economic law. I know he was alive on Aug 15, 1971 so he should know about how the monetary system of the world changed that day.
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By saying "no"? Job well done, Bernank. You really got us on that one.

2. Why do central banks hold gold?"Because many people think it has value.

All value extends from the human mind. This isn't a new concept. Menger wrote out this simple law 140 years ago. Saying "many people think it has value" applies to every economic good and service. It certainly does not answer the question. Many people think TVs have value. Why doesn't the central bank hold TVs? Cellphones? Houses? Carrots? Diamonds? Baseball cards?

Specifically, why gold?

There are so few uses for gold that its value is all preserved.

First off, this sentence doesn't even make sense. It's like saying that something's value is separate from its use.

There are many uses of gold. Gold's use is not limited to the following list:

Medicine, Dentistry, Aerospace, Computing, Electronics, Glassmaking, and of course, for 6,000 years it was the most commonly used money.

You see there is another 87.9% held in other forms and the only reason it is currently at 12.1% is because the going rate of gold has be climbing fast then many of the banks have been selling it.

Again, you don't even understand what you are arguing. The ton weight of gold has not decreased among central bank reserves. The only thing that has increased in quantity is the amount of paper they hold - which they printed in the first place. So as a percentage, gold reserves are dropping butone might notice that it is in near perfect inverse proportion to the amount of foreign exchange reserves they hold. They are not getting rid of gold. They are adding paper to already existing piles and piles of paper.

Somebody reversed that, eliminated that economic law.

You can reverse economic law, really? If I pass a law that says there is no such thing as gravity, does that mean you can fly?

This is the childish etatist view that the state in its infinite wisdom can just pass a law and make the world change. It's the 7th grade view of government.

Nobody reversed anything. The Federal Reserve printed up more dollars than the gold standard allowed. They broke the law. They mismanaged the currency.

(I wish every time I f*cked up, I could just cop out by saying "I reversed that law!"

Hey David, you were supposed to deliver that report to me. What happened?

Didn't you get the memo, old timer? Somebody reversed that law!

Ron Paul knows Aug 15, 1971 very well. If you weren't so colossaly ignorant to this man's work and history, you would know this as well.

That's the day your beloved and holy government declared bankruptcy and defaulted on its obligation to pay dollars for gold. That's not "monetary policy." That's called going bankrupt.

Heheh. More and more I think that the dollar will not become completely worthless.... it will simply be backed by gold when things get desperate enough.... and then when things get better Nixon II will convince us we need to get off the standard to create jobs..... rinse, repeat.... GOT GOLD?

This is the best criticism of gold as money I have seen (and really he just means that governments will likely abuse the standard and denominate our debts in gold). Also, he's calling for a short term pull back in gold (not necessarily agreeing but I think he makes strong points).

Thanks for the kind comment, but let me point out that the article in which I refer to two scenarios in which gold goes to either $500 or $5,000 (http://www.fool.com/investing/general/2011/07/06/the-path-to-5000-gold.aspx) describes a conceptual model that is purposely over-simplified. I did this as a thought experiment to try to understand how people are justifying paying current prices for gold. I don't think that gold can only go to $500 or $5,000.

Below is a full video of the exchange. Paul comes off looking worse here because he gets so many things wrong in describing the authorities' response to the crisis and the cost, etc., This undermines his criticisms of the Fed, because it leads you to wonder if he understands the situation:

This seems like a purely semantic argument. If you think of money as anything that has trade value, then all things are potential money. If you think of money as a currency recognized by a government, then gold is not money. It has value, just as my car has value, but it's not money.

I am glad you brought this up here and thankful you invited discussion.

Perhaps many of your readers are hearing Dr. Paul grill a Fed Chairman for the first time, but he has been doing this for 20 years (?) to all manner of Fed officials. I guess that many first timers would be confused/offput by his style. What makes it more striking is the contrast to other politicians that usually ask softball questions and take the Fed official's answers as authoritatitve and decisive on the issue. (Grayson excluded) Dr. Paul doesn't do that.

Paul comes off looking worse here because he gets so many things wrong in describing the authorities' response to the crisis and the cost, etc.,

Not according to Austrian School economics. In regards to that school, Dr. Paul is usually spot on. He would find agreement from Hayek, Mises, Rothbard and the hundreds of modern day scholars of this economic school.

Now if you want to argue that the Austrian School of Economics is flawed, you will have to prove your case. Good luck.

If central banks think gold is so important why do they hold so little as a percentage of their reserves? Global average is 12.1% as reported by the IMF.

You're correct that the global average is approx. 12% (11.6% at July 2011, according to the World Gold Council), but it's much higher for the U.S., where the ratio is three-quarters. One of the reasons the global average is so low is that China and Japan, which together hold over a third of global reserves, hold very few of their reserves in gold.

On what planet is 12.1% of global central bank reserves "so little"? What does that equal in tonnes?

Could the fact that it is "only" 12.1% have anything to do with the accelerating amount of paper money cascading across the planet? You've heard of foreign exchange reserves, right?

I think we know the answer to these questions.

I know the answer to these questions, but it appears that you don't.

Between Q1 2000 and Q1 2011, foreign exchange reserves have grown at a rapid rate: 16.4% annualized. However, gold as a percentage of total reserves has remained relatively constant during that period, going from 12.3% to 11.1%.

I'm sure you'd agree that its essential to study something in order to criticise it. While true Austrian Economists also study Keynes and Friedmon (so that they understand the reasoning behind the opposing theories) do Keynsians bother to read Hayek?

You're absolutely correct that gold bugs are traditionalists, and that Ron Paul makes an appeal to tradition with the 6,000 years comment. The point here is that Bernanke is ostensibly NOT a gold bug. He's the one who pokes his head out of the sand every few weeks and tells us that everything is going to be just fine and that there's absolutely no way the dollar will collapse!

But the simple fact is that most traditions are also quite logical and can be easily explained. We don't just have laws because they're "tradition," we have them to maintain peace and order throughout society. If you were to ask your local police chief why the laws exist, and "tradition" was the only answer he could give you, I would think that you would immediately demand his resignation for incompetence.

Bernanke is also right that people hold gold to reduce the risk of "very bad outcomes." I suspect that's the same reason the Fed holds it. But why doesn't he say so? He's intentionally witholding information and obfuscating the truth because the truth does not happen to fit the agenda of the Fed or the white house. Bernanke can't just come out and say "You know as well as I do Congressman that we've printed a lot of money, and we need to have some gold around just in case we start to see hyperinflation."

Between Q1 2000 and Q1 2011, foreign exchange reserves have grown at a rapid rate: 16

Again, that's not the argument. We're saying the same thing.

Cluck implied that central banks are getting rid of their gold. I responded that it only looks that way because foreign exchange reserves - paper money that they created - are growing. But the actual physical amount of gold in central banks has stayed nearly constant.

Where did I criticize Austrian Economics?

Not saying you did. I'm saying that Ron Paul's position on the crisis is the Austrian School's, not his own. So to say he is wrong will lead to a discussion of Keynesian vs. Austrian. Just saying it's gonna go there. Always does.

The Road to Serfdom is one of my favorite books

Very cool and I am happy to know this. But that's Hayek's policitcal discourse, related to his economic understanding. To truly grasp the Austrian School position on the current crisis, I can recommend no better book than Meltdown by Thomas Woods. I hope you'll take a look.

The point here is that Bernanke is ostensibly NOT a gold bug. He's the one who pokes his head out of the sand every few weeks and tells us that everything is going to be just fine and that there's absolutely no way the dollar will collapse!

I suspect that if Bernanke were to come out and predict a collapse of the dollar instead, it would do nothing to prevent it. If there is one thing you can be certain of, it is that he has spent infinitely more time thinking about the risks inherent in the current situation and the Fed's actions than you or I.

"Personally, I think Bernanke comes out looking better in this exchange, but I'm sure many people here will think the opposite. Obviously, it depends on your notion of gold."

"Below is a full video of the exchange. Paul comes off looking worse here because he gets so many things wrong in describing the authorities' response to the crisis and the cost, etc., This undermines his criticisms of the Fed, because it leads you to wonder if he understands the situation"

Technically these are indirect criticisms of Austrian Economics. However, Ron Paul is more or less echoing the work of Von Mises and Hayek (ie Austrian Economists) and I fail to see how Ron Paul fails to understand the situation. While he oversimplifies his stance due to time constraints, he's not saying anything incorrect.

Ron Paul also thinks the U.S. constitution was written to limit the federal government. That's probably a popular view too. But the realitry is it was written to create the federal government. We onlhy had a confederation before the constitution. Can anyone remember the 8 presidents of the U.S. prior to George Washington? I doubt it. In Paul's image of the world we would end up a lot like Europe--a bunch of separate countries. Only we wouldn't even have the Euro, much less the dollar.

I don't think that's a fair criticism tomlon. He isn't indiscriminately against a strong national government. For example, he believes that there are just wars (where congress approves and appropriates spending). The key point, however, is that the military accomplishes its goal and then gets out (no nation building).

He certainly wants less national government intervention, but I doubt he'd support and impotent government a la the confederation.

Alex,

Thinking it over you didn't really criticize Austrian Theory. But, I'm sure you can understand where we are coming from. What did RP say that was incorrect?

I finally remembered who Bernanke reminds me of when he answers 'No' to Ron Paul's question of whether he thinks gold is money.

In Caddyshack, Carl Spackler (Bill Murray) is telling this kid about the time he caddied for the Dalai Lama in Tibet. At one point, he asks the kid: "Do you know what the Lama says?" Naturally, the kid replies "No". Listen to it here, the intonation is the same as Bernanke's -- it's uncanny.

This is one Bill Murray's greatest comedic scenes, perhaps the greatest. Unfortunately, the full monlogue isn't captured in the audio clip. Shame, as Spackler concludes with:

"So we finish the eighteenth and he's gonna stiff me. And I say, "Hey, Lama, hey, how about a little something, you know, for the effort, you know." And he says, "Oh, uh, there won't be any money, but when you die, on your deathbed, you will receive total consciousness." So I got that goin' for me, which is nice."

"Cluck implied that central banks are getting rid of their gold. I responded that it only looks that way because foreign exchange reserves - paper money that they created - are growing."

I didn't imply that they were getting rid of their gold, I said they were. Foreign reserves have been increasing at a rate of 16% but gold's value has averaged an 18% increase per year over that same time period. So if the value of gold grows faster than the increase in foreign reserves holdings the percentage of holdings that is made up of gold should increase rather than decrease. What reason could there be for the decrease? How about this: http://www.cnbc.com/id/39376353. As you can see the central banks of europe sold an average of 388 tons of gold a year from 1999 to 2009. Also note that the first link I had showed Russia selling their gold reserves at a steady rate.

"Note that central banks choose gold whenever they can."

Wrong. If Central Banks wanted gold so much why would they need to make an agreement to limit the amount of gold that they sell?

Ron Paul also thinks the U.S. constitution was written to limit the federal government. That's probably a popular view too. But the realitry is it was written to create the federal government. We onlhy had a confederation before the constitution. Can anyone remember the 8 presidents of the U.S. prior to George Washington? I doubt it. In Paul's image of the world we would end up a lot like Europe--a bunch of separate countries. Only we wouldn't even have the Euro, much less the dollar.

Presidents of Congress were not presidents of the United States and didn't hold any power other than to "preside" over congress. (hence where the name came from.)

There were 8 of them before the articles of confederation were even Signed. (If you count both times that Peyton Randolph served.)

Assuming that you count Samuel Huntington who served both before and the next 2 months after the Articles were signed, there were 10 Presidents of Congress post Articles of Confederation. Most of these guys served less than a year and when Congress adjurned there was literally no President. (Which goes to show you how little power that they had. )

Under the Articles of Confederation there were both a Secretary of Foriegn Affairs (Robert R. Livingston and John Jay) and a Secretary of War (Benjamin Lincoln and Henry Knox) Their positions would give some the reason to state that they held the most powerful office in the U.S. at the time, but I have an even better curveball...

From 1775 to 1783 there was an individual that had the title "Commander and Chief of the Continental Army" I would argue that the closest thing we had to a President before George Washington was actually George Washington.

Now on to the founding fathers intentions of the Constitution. Being a lawyer, I'm sure that you're familar with the use of the Federalist papers in court to establish the intents of the founding fathers with the creation of the constitution.

I will give you that the Constitution was created to create government, but we did already have a government when it was written. I would submit that it was written to create a different government and one of the primary objectives was to make sure that government was limited.

My last statement is for Alex.

I agree that both China and Japan do not hold enough gold, and their economies and will be doomed because of it. What they do hold more than most countries is relatively worthless and will eventually ruin their economies. They are by far the largest holders of US debt. The country that doesn't believe gold is money and the country that prays that China and Japan continue to value our I.O.U's over something that will retain it's value. The country that also prays that S&P and Moody's doesn't downgrade it's debt.

As you can see the central banks of europe sold an average of 388 tons of gold a year from 1999 to 2009

Wow, a whole 388 tons a year huh? The IMF alone held 3,217 tons as of 2009. Through 2010 the Eurozone held over 10,000 tons.

Foreign reserves have been increasing at a rate of 16% but gold's value has averaged an 18% increase per year over that same time period. So if the value of gold grows faster than the increase in foreign reserves holdings the percentage of holdings that is made up of gold should increase rather than decrease. What reason could there be for the decrease?

I suspect that if Bernanke were to come out and predict a collapse of the dollar instead, it would do nothing to prevent it. If there is one thing you can be certain of, it is that he has spent infinitely more time thinking about the risks inherent in the current situation and the Fed's actions than you or I.

No kidding. Which probably explains why they have substantial holdings in gold. They want to protect themselves from "very bad outcomes" but they don't think you should. Interesting, that.

You're right that Bernanke couldn't prevent a collapse of the dollar by telling us the truth, but if he did, he sure as hell would speed it up =)

Bernanke: "No it's a precious metal".... "Its an Asset"...."It's a form of reserves".

Paul: "Why don't they hold diamonds"

Context, (instead of gold).

Benake: "It's tradition, long term tradition"

Context (instead of diamonds).

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It's interesting to see an exchange get taken out of context in so many ways. Clearly most people do have their mind made up about Bernake and Paul and take the parts of the exchange they emulate with.

Neither Bernake or Paul said what their critics are saying they said. Bernake said he cares about what gold prices do and makes a nice link to a tailspin. He says gold is an asset and a form of reserve. He simply says it's not money. That doesn't mean it can't be traded or that it doesn't deserve a position in one's holdings.

Personally, I'd have the same question, why not diamonds, after all they have the same attributes as gold and they are a girl's best friend.....

If someone found a geological cash of diamonds or gold that was in a location open to many, and easy to exact, that dwarfed the current supply, then a sudden change in their price would dwarf anything US Dollars has done in any short term period.

Diamond's are not money because they are inconsistent (impurities) and difficult to valuate. Similarly, they are not homogenous or divisible. Furthermore, they can be synthetically produced and are technically not thermodynamically stable.

Finding a giant store of gold big enough to sway the market is ludicrous and not based on geological facts.

Dr. Bernanke says people hold gold for tail risk (implying they hold it for ONLY tail risk). This is of course incorrect. Who's taking what out of context?

Furthermore (and maybe off point), the current U.S debt is greater than the total amount of physical circulating currency and all gold mined in the history of mankind as we know it.

It's astounding to me that people can presume to be inside somebody else's head. When someone says something that doesn't fit with my interpretation of reality, I'm not arrogant enough to automatically assume that they don't mean what they've said and that they secretly agree with me.

And again, you are missing context Franky, Bernake DID NOT say that they hold Gold out of tradition. He said they hold it RATHER than diamonds out of tradition.

Sounds like you have a better reason to give to Paul why not diamonds than Bernake,(easier to value/synthetic), but that was Paul's question...not Bernanke's. I don't think any of your reasons for why Diamonds are not money would sway the countless Billions/Trillions of dollars of tranactions that have been made involving diamond, but again, it has nothing to do with Paul's question or answer. Gold is used, not diamonds as Paul asked, because of tradition.

As for a large enough geological source to sway the market.....I don't really think that's ludicrous. One that isn't controlled by someone who limits it's entry, however might be more difficult to find.

That gold is finite is very true. That gold is limited, however, is not. We've only explored a fraction of the earths surface and we won't stop finding gold. The question will be how accessible it is, the cost to gather/extract it, and the way it is brought onto the market.

Ok. Technically gold is held by central banks, in part because of tradition. In that sense Ben Bernanke statement was not INVALID. However, that isn't the primary reason gold is held by central banks. In that sense, I'm accusing him of a lie of omission. Gold is held by central banks because it is a secure store of value (frankly, it's money). A quick perusal of IMF.org would give you many examples of how gold is used to back loans. I'm sure you're going to argue that the IMF uses gold for these purposes because of tradition... that's ludicrous. If by tradition you mean that history MATTERS then yes.... but gold has a value and integral use TODAY.

I'm not taking it out of context TSIF. I understand clearly that he is answering the question gold vs. diamonds. Diamonds have "billions/trillions of dollar transactions" because of their utility as aesthetic jewelry. Not because of their utility as a store of value. Banks do not hold diamonds because of the reasons discussed in my previous post... ie they are not utilized as money.

Based on the "tradition" reasoning you could argue that soldiers wear a camouflage uniform because of tradition. Technically, that's valid. However, if you were a professor teaching the history of the US military and a student asked that question, you would not answer tradition. You would inform the individual of the utility of camouflage as a way to obfuscate the soldier's position depending on their environment. You might also mention that consistency of uniform allows the troops to recognize each other and prevent friendly fire. In this sense history is certainly relevant.

In my analogy I should have said, wear camouflage uniforms instead of all pink uniforms. Tradition plays a role but its not the real answer. Camouflage uniforms are clearly superior in their role as uniforms compared to all pink ones.

Frankydontfailme, you are just full of assumptions. You assume that Bernake lied by omission. First of all if Ron Paul had expected a different answer, or thought Bernake was hedging his answer, he would have had follow-up questions before yielding. Second, Bernake has been "on the hill" many times. He's learned that you don't respond with any more of a response than what is needed. You open yourself up to further questions or criticism. I seriously doubt that Ron Paul would have appreciated a lesson on reserves from Bernake. Your assumptions imply that Bernake is a fool. All your assumptions are starting to show on your complexion. You may want some pink camouflage to go with the complexion.

TSIF, of course I made assumptions. However, your misunderstanding of the assumptions that I made leads me to question your ability to reason.

"You assume that Bernanke lied by omission."

No I did not. I assumed that Dr. Bernanke has a basic understanding of economic law. I therefore assumed that he understands the benefits of gold relative to diamonds as a store of value. This isn't an outrageous assumption... he's the federal reserve chairman... probably a quantifiable genius. And (see my explanation of the inanity of his explanation, "tradition") therefore, I CONCLUDE (not assume) that he lied by omission. (Frankly, you could also logically conclude that he straight out lied to the question "do you think gold is money?")

I do not imply that Dr. Bernanke is a fool, quite the opposite is true. However, if you disagree with my assumption that Dr. Bernanke understands basic economic law, then the conclusion that you seem to be making is that he is a fool...

Please point to any other assumptions that I am making. I do not throw untenable assumptions around willy-nilly as you propose. In fact, I would recommend reexaming your own thought process.

I would think that gold was money instead of diamonds because of it relative scarcity, its complete uselessness as a metal and the King could stamp his mark onto it.

Just like paper today.

Best wishes,

Steven

Once again, our Marxist sounds plausible, but his words do not stand up to scrutiny. The reason diamonds are not money is because the market demands that money be fungible. Each gold coin, on the other hand, has the same characteristics as the other.

Usage preceeds law. Gold did not become money because a King stamped it. It would have to be already used by the people for the King to abrogate the right to distribute it. Usage preceeds law.

And it is no surprise that the historical record is filled with Kings who sought to control the mint and debase the coin for their own profit. There are also records of private mints lasting up until the 1800s.

Gold is not money because a King stamped it. What is money is determined by the market. We have unbacked paper money because the government decided to overturn the market's decision to use gold. It's not "tradition" Mr. Bernanke. It's not sovereign privilege, devoish, you bizarre Marxist Statist. It is a rejection of Economic Law.

You attack me like I cost you your job or something. Regardless, namecalling is not an argument, neither is it impressive.

Being able to make exact duplicates might have been important to "fungibility". Being able to measure weight, too. Good job on that. At least it was interesting.

Anyway, I am off to trade my time for a chicken. Really. Then I am going to trade the chicken for some vegetables. Also true. Yet the chicken is not money, is it? PS the chicken has not been inspected or stamped by the USDA. Does that make a difference?

BTW. My desire to read your writings has grown thin. I will not waste a lot of time reading you calling me names. If you have a point to make, make it short.

My point was that you were, once again, completely wrong and ignorant of economics. Your response demonstrates it further. Shedding crocodile tears for the working man is your area of expertise. Stay in that circle.

I do understand economics. I do understand you. Your politics corrupts your thoughts, or you are simply a tired sales pitch. This was a better website before you got here, it will be better when you are gone.

When we speak to working me and women, most would do best to remember if they are working men and women, or if they get most of their income from investing.

I say the chicken in my reply is just as much real money as gold or paper, based upon the wikipedia description and the fact that I can trade it.

You didn't answer the question and you don't have to, but you called us out for having an opinion. Is it wrong to have an opinion, especially one that can be amply supported by Bernanke's own statements?

What is your opinion of him?

Does it just make you uncomfortable that I think he is an ignorant, sniveling little witch doctor?